The “Heat Map” is indicating the U.S. stock market is in good shape ASSUMING no international crisis. One potential international crisis hot spot is Iraq. The situation has grown slightly worse during the last week in some regards; however, the Iraqi government, to date, has held off the ISIS rebels from capturing Iraq’s largest refinery – a key objective. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate the Iraq situation as a 4 at this time. For more information, read “The Markets This Week” article.
Daily Archives: June 23, 2014
The “Heat Map”
Most of the time the U.S. stock market looks to 3 factors (call them the “pillars” that support the stock market) to support its upward trend – let’s grade each of the pillars.
CONSUMER SPENDING: We have graded this factor B (above average) based upon the increase in retail sales as reported in recent economic reports.
THE FED AND ITS POLICIES: We continue to grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices.
BUSINESS PROFITABILITY: We rate this factor B- (slightly above average).
NOTE: There is no change from the last report.
The Economy
The US Inflation Rate reached 2.10% year over year following May’s increase of .40%. The Fed continued to reduce its bond purchases by another $10 billion, which now stands at $35 billion of purchases per month. Additional economic data below:
- US Manufacturing Production increased 3.60% in May over the same month in the previous year.
- US New York Empire State Manufacturing Index increased to 19.28 in June from 19.01 in May.
- US Philadelphia Fed Manufacturing Index increased to 17.80 points in June from 15.40 in May.
- US Industrial Production increased .59% in May over the previous month.
- US Initial Jobless Claims decreased to 312,000 in the week ending June 14th.
The Numbers
Last week, U.S. Stocks and Foreign Stocks increased. Bonds were unchanged. During the last 12 months, STOCKS outperformed BONDS.
|
Returns through 6-20-2014 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
0.0 |
3.3 |
3.3 |
3.3 |
5.0 |
4.1 |
|
US Stocks-Standard & Poor’s 500 |
1.4 |
7.2 |
26.2 |
17.9 |
18.8 |
7.8 |
|
Foreign Stocks- MS EAFE Developed Countries |
.8 |
3.6 |
21.1 |
6.6 |
8.7 |
4.1 |
Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends.
“Your Financial Choices”
“Your Financial Choices” The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®, AEP®. This week, Laurie will discuss: “Going into business for yourself”
Laurie will take your calls on this topics and other inquiries this week. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton and Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville and Macungie area – or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.comand visit www.wdiy.org.
Motivational Quote of the Week
“Two roads diverged in a wood, and I—I took the one less traveled by,
And that has made all the difference. “
– Robert Frost
Personal Notes
This week’s motivational quote is an excerpt from Robert Frost’s, “The Road Not Taken”. It is one of my favorite poems. Many interpretations have been made of this poem which speculate as to what Robert Frost is communicating to the reader. I prefer the “American” interpretation which states the poem is emblematic of America’s individualist spirit of adventure, in a reading that assumes the wording of the poem is to be taken literally. To read the entire poem, click here.
Thomas M. Riddle
President, VNFA
The Markets This Week
Stocks racked up another set of gains last week, as both the Dow Jones Industrial Average and Standard & Poor’s 500 index notched new all-time highs on Friday. In contrast to the response to the Ukrainian political and military crisis, investors have so far paid little attention to the fighting in Iraq and resulting higher oil prices. Small-caps outperformed large-caps, suggesting the risk-on trade was in full swing.
With relatively few economic news reports released, most of the action took place on Wednesday, when the Federal Open Market Committee meeting was held. In the press conference afterward, Federal Reserve Chair Janet Yellen tamped down inflation worries, and her comments suggested the rise in interest rates that nearly all investors are expecting will take place later rather than sooner.
Last week, the Dow rose 171 points, or 1%, to 16,947.08. That’s a new high, and the 11th this year. The S&P 500 rose 27 points, to 1962.87, also an all-time high, and its 22nd such close this year. The Nasdaq Composite index rose 57 points, or 1.3%, to 4368.04. The Russell 2000 index jumped 26 points, or 2.2%, to 1188.40.
The FOMC meeting reassured investors on a number of issues, in particular that the Fed’s rate outlook hasn’t changed much. The $10 billion per month tapering of its bond-buying program continues, interest-rate tightening is not imminent, and when it does come, it will be gradual. Yellen said that economic activity was rebounding, even as the Fed cut its U.S. 2014 gross-domestic-product projection to 2.1% to 2.3% from 2.8% to 3%, on Wednesday
She also downplayed inflation fears, calling the recent figures showing rising consumer prices “noisy.”
HIGHER INFLATION MIGHT force the Fed to hike rates earlier than was anticipated, but the market chose to focus on the “noise” comment, says Ryan Larson, head of equity trading at RBC Global Asset Management. That effectively pushed the ongoing debate about the beginning of interest-rate hikes toward a second half of 2015 event, he adds.
Nevertheless, with market complacency seemingly so high, both investors and the Fed should pay more attention to inflation, argues Liz Ann Sonders, chief investment strategist at Charles Schwab. Inflation data, such as the consumer price index, has ticked up steadily for three months, she notes, so the Fed’s low level of concern and the market’s quick acceptance of Yellen’s comment “surprised me a little.”
Sonders remains bullish and believes inflation isn’t a problem, but the potential for a market scare exists. With near-term sentiment optimistic, an inflation surprise could be a trigger for a pullback, she says.
The same could be said for the deteriorating situation in Iraq, though investors are doing their best to ignore it. The more time goes by without the U.S. dropping bombs or getting further involved, the better it is for the market, says Larson.
However, that can change in a hurry, says Kenneth Polcari, director of New York Stock Exchange floor operations for O’Neil Securities. It looks like a difficult situation to resolve, and “the market isn’t paying attention because it hasn’t imploded yet. When it gets worse, it will pay attention.”
(Source: Barrons Online)